Taking Pension out at 55

farquarpigmix

Am I correct in saying. The first 25% is tax free but the rest gets taxed at 40%? I have 2 pensions just laying there. 1) Approx £8,000 2) Approx £15,000

dunstonh

The first 25% is tax free but the rest gets taxed at 40%?

No. The first 25% is tax free but the rest is added to your income and charged the appropriate rate of tax based on the total.

I have 2 pensions just laying there

Are they not invested?

farquarpigmix

From previous jobs. So £6,000 approx is free. Leaves £17,000 which is then added to say my yearly wage of £22,000? Which is then taxed?

jem16

farquarpigmix wrote: »

So £6,000 approx is free. Leaves £17,000 which is then added to say my yearly wage of £22,000?

Yes.

Which is then taxed?

Yes at 20% but it's likely to be taxed higher as it will be a Mth1 calculation and you would have to claim it back.

Any reason for cashing it in now?

Linton

farquarpigmix wrote: »

From previous jobs. So £6,000 approx is free. Leaves £17,000 which is then added to say my yearly wage of £22,000? Which is then taxed?

Your understanding is correct, well its the £17K which will be taxed by the pension company using PAYE as if you had a second job. One annoying extra detail - the £17K will be taxed as if your total income was 12 monthly payments of £17K which would lead to about 45% being deducted. You would then have to claim the excess tax back by a form here.

It's unlikely that the pensions are just sitting there doing nothing. Do you need to take them out?

[Deleted User]

Linton wrote: »

One annoying extra detail - the £17K will be taxed as if your total income was 12 monthly payments of £17K which would lead to about 45% being deducted.

So presumably if the OP had a last day of work on March 31st and started drawing the pension from April, he would escape the issue of being taxed at 45% and having to reclaim due to the end of the financial year? Or have I got it wrong?

Linton

Sleazy wrote: »

So presumably if the OP had a last day of work on March 31st and started drawing the pension from April, he would escape the issue of being taxed at 45% and having to reclaim due to the end of the financial year? Or have I got it wrong?

The problem only arises in circumstances where there is only one payment taken as is the case with the OP withdrawing all his pension in one go. The tax is deducted on the basis that today is the first of the tax year - ie a Month 1 basis. It all happens because PAYE is designed to operate with a steady income. The first payment ever is taxed in the Month 1 basis before a taxcode is issued, Month 1 being a worst case default. Once the tax code is issued PAYE sorts out the over payment. If there is never a second payment in that tax year.......

farquarpigmix

Am 55 in October. I would like to enjoy myself now. Not at 66 when am old & knackered. Because knowing my luck the pension age will move again. Thank you for all the replies so far.

xylophone

Not at 66 when am old & knackered.

Crumbs! Do you have a very stressful job?:eek:

bigadaj

You can take the tax free lump sum and then ,eave the rest invested, with no tax to pay. This is a one off, or you can split the pension into smaller parts, and crystallise it in stages to take out so much of the tfls, and either take some pension and the same time or leave it invested.

It may well be the case that the current plans don't offer all the possible options so you would need to transfer the plans to either a new plan with your current providers or a new provider(s).

Andypandyboy

Is there not a rule about putting money in after some has been taken out? Or have I dreamed that?

Would this not affect current/future payments from now until actual retirement age?